USD/JPY – Soft Dollar Slides Below 113 Yen, US Inflation Data Next

USD/JPY has posted considerable losses in the Tuesday session. In the North American session, the pair is trading slightly at the 113 line. On the release front, Revised Industrial Production rebounded with a strong gain of 1.5%, matching the forecast. In the US, the Empire State Manufacturing Index dipped to 6.5, short of the forecast of 8.1. Wednesday promises to be busy, with the US releasing CPI. The key indicator is expected to edge up to 0.3% in the December report.

On Monday, Japanese manufacturing reports were mixed. Core Machinery Orders were dismal, with a sharp decline of 5.1%. However, Preliminary Machine Tool Orders rebounded and posted a strong gain of 4.4%. Japanese data has been stronger than expected in recent months, prompting an upward revision from the IMF regarding the economy’s growth. The IMF is projecting growth of 0.8% in 2016, compared to a 0.6% forecast in October.

With the US economy on track and the country celebrating a new president, the US consumer remains very optimistic. The UoM Consumer Sentiment in January was solid, although the markets had expected a stronger performance. The indicator was almost unchanged at 98.1, shy of the forecast of 98.6. Despite the optimism, US retail sales were a mix during the December holiday season. Retail Sales improved to 0.6%, edging above the estimate of 0.5%. However, much of the increase in spending was attributable to automobile sales, at the expense of other sectors of the economy. This was reflected in Core Retail Sales (which excludes car sales), which remained stuck at 0.2%, compared to a forecast of 0.5%. Still, analysts are confident that a bullish consumer will translate into strong spending numbers in the next few months. There was good news on the inflation front, as wholesale prices (measured by PPI) rose 0.3%, beating the forecast of 0.1%. This marked the third rise in four months, as inflation is pointing upwards due to higher oil prices. If inflation continues to climb towards the Federal Reserve target of 2.0%, we could see the Fed step in and raise interest rates. Last week, FOMC member Patrick Harker took note of the strong US economy and projected three “modest” rates from the Fed in 2017.

Fed’s Harker Sees 3 Rate Hikes in 2017

USD/JPY Fundamentals

Monday (January 16)

• 23:30 Japanese Revised Industrial Production. Estimate 1.5%. Actual 1.5% 

Tuesday (January 17)

• 8:30 US Empire State Manufacturing Index. Estimate 8.1. Actual 6.5
• 8:45 US FOMC Member William Dudley Speaks
• 10:00 US Treasury Secretary Jack Lew Speaks
• 10:00 US FOMC Member Lael Brainard Speaks

Wednesday (January 18)

• 8:30 US CPI. Estimate 0.3%
• 8:30 US Core CPI. Estimate 0.2%

*All release times are GMT

*Key events are in bold

USD/JPY for Tuesday, January 17, 2017

USD/JPY January 17 at 9:30 EST

Open: 114.15 High: 114.28 Low: 112.71 Close: 113.03

USD/JPY Technical

• USD/JPY dropped slightly  in the Asian session and posted sharper losses in European trade. The pair has been choppy in the North American session
• 112.57 is providing support
• 113.80 is the next resistance line
• Current range: 112.57 to 113.80

Further levels in both directions:

• Below: 112.57, 110.94 and 109.85
•  Above: 113.80, 114.83, 115.88 and 116.88

OANDA’s Open Positions Ratio

USD/JPY ratio is showing slight movement towards long positions in the Tuesday session. Currently, short and long positions are almost evenly split, indicative of a lack of trader bias as to what direction USD/JPY will take next.

This article is for general information purposes only. It is not investment advice or a solution to buy or sell securities. Opinions are the authors; not necessarily that of OANDA Corporation or any of its affiliates, subsidiaries, officers or directors. Leveraged trading is high risk and not suitable for all. You could lose all of your deposited funds.